Review of CDM methodology development process

Annual Meeting of the Host Country Committee on Carbon Finance

Washington DC, 15 February 2005

Lasse Ringius. Carbon Finance Unit. World Bank

Objectives

Identify key issues for host countries in the baseline methodology development and approval process,• Methodology development process• Sectoral scope of methodologies Create a basis for inputs by host countries on:• Suggestions for improving the baseline development process• How host countries can support and shape process

Overview

1. Procedures for reviewing new CDM methodologies

2. Baseline methodology and additionality testing 3. Sectoral scope and coverage of methodologies 4. Implications of CDM EB decisions on PCF

portfolio5. Improving the baseline development and approval

process

Procedures for considering new methodology

Baseline methodology components

• Justify choice of baseline approach (MA 48 a-c);• Method for determining the baseline scenario;• Explanation of how, through the methodology, it is

demonstrated that a project is additional;• Define, elaborate and justify formulae/algorithms to

determine baseline scenario;• Define, elaborate and justify formulae/algorithms to

determine base case emissions; • Define, elaborate and justify formulae/algorithms to

determine project emissions;• Inclusion of national policies and circumstances; and• Leakage.

Scope Number

Sectoral Scope Methodology Approved Small Scale Methodologies

1

Energy industries (renewable - / non-renewable sources)

AM0004, AM0005, AM0007, AM0010 AM0014, AM0015 AM0019

AMS-I.A., AMS-I.B. AMS-I.C., AMS-I.D. AMS-II.B.

2 Energy distribution AMS-II.A.

3 Energy demand AM0017 AM0018 AMS-II.C. AMS-II.E.,

AMS-II.F.

4 Manufacturing industries

AM0007,AM0008 AM0014 AMS-II.D.

5 Chemical industries

6 Construction

7 Transport AMS-III.C.

8 Mining/mineral production

Scope of approved methodologies/1

Scope Number

Sectoral Scope Methodology Approved Small Scale Methodologies

9 Metal production

10 Fugitive emissions from fuels (solid, oil and gas)

AM0009 AMS-III.D.

11

Fugitive emissions from production and consumption of halocarbons and sulphur hexafluoride

AM0001

12 Solvent use

13 Waste handling and disposal

AM0002, AM0003, AM0006, AM0010, AM0011, AM0012 AM0013, AM0016

AMS-III.D. AMS-III.E.

14 Afforestation and reforestation

15 Agriculture

AM0006 AM0016

AMS-III.A. AMS-III.E.

Scope of approved methodologies/2

CFB contribution to methodology

Table 1: Status of CDM methodologies (as of 11/ 24/2004)

CFB Non-CFB total CFB share

"A" rated 5 16 21 24%

"B" rated 4 46 50 8%

"C" rated 3 14 17 18%

Total methodologies 12 76 88 14% Source: UNFCCC CDM website. “A” = approved and published, “B” = may be approved with modifications, “C” = not approved.

Implications of EB decisions on PCF portfolio

• By December 2004, app. 60% of the PCF portfolio covered by approved or nearly approved methodologies (up 10% from June 2004).

• Waste management– 4 CDM projects using AMs or ACM, 1 JI project (Liepaja)– No problems expected

• Energy efficiency & fuel switching– 2 CDM, 1 small scale, 5 JI projects– No approved CDM methodology yet– Uzbekistan: test case – feedback on supply constraints

received: resubmission under preparation– FaL-G India: small-scale project with many actor and many

sites – new simplified methodology under preparation

Methodological coverage/1

• Electricity generation– 12 regular, 5 small scale CDM projects, no JI

– All CDM projects covered by AM, ACM or simplified methodology.

– Chacabuquito: submission of national methodology for Chile. PCF methodology covered as special case.

– El Canada: ACM under consideration – smaller loss.

– Jepirachi: National methodology for Colombia or ACM0002 with narrower boundaries to exclude transmission bottlenecks, or 3rd party methodology when approved.

– Jincheng: ACM0002 & new methodology for coal mine methane

Methodological coverage/2

• Land use– 2 CDM, 1 JI projects– Methodologies for A/Reforestation are now accepted for review– Plantar:

• Carbonization methodology almost ready for submission• Still no decision on continuation activity, but EB ready to consider V&M

methodology on its technical merits. • New fuel switch methodology for pig iron component – drawing on

lessons from approved fuel switch methods.• A/R methodology not a priority due to swapping of sequestration credits.

• Industrial gases– New methodology for N20 project in India, drawing on lessons

from HFC-23 cases.

Summary description of CDM baseline development process

• The baseline methodology development process is still at the early stage

• The CDM EB has been quite successful given the limited resources available

• The process is unique – no international precedence• Process builds on a case-law approach• Follows a bottom-up approach• The burden is on the project developer• It is still very time-consuming to develop CDM projects• It is still costly to develop CDM projects

Improving the regulatory system

• Study on reform needs and options– Funding gap

– Technical expertise, resource groups to support EB, panels

– Organization of CDM Secretariat, EB, panels • CEO / General Secretary for CDM

• full time job for EB chair etc.

• Staffing

– Transparency and communication

• Discussions with Parties and other stakeholders

• WB / CFB support for EB and UNFCCC Sec.– Project developers workshop

– Power sector workshop

– Other support offered

• Capacity building work in and with host countries

Key questions

• Is the process timely? Too slow?• Is the amount of required technical input reasonable? Too

much reliance on technical input? • Is the required technical input readily available? Not easily

available or perhaps even unavailable?• Is the amount of preparation reasonable and feasible? From

the project proponent’s point of? From the point of view of host governments?

• Should the process be continued in its current configuration?

• Is it more likely to change? In what way?• Is the sectoral coverage adequate?

Elements of a proactive approach

• Host country representatives on the Meth Panel and roster of experts

• Interact with government representatives on EB• Develop projects and methodologies better suited to

conditions in developing countries• Focus on GHG intensive sectors which are not covered by

methodologies